The ES is thin to win.

The ES is thinning out quickly, that generally favors the upside.

The path of least resistance is likely higher overall. Many will argue that doesn't make sense due to the barrage of political turmoil, a pathetic global economy, and the trade war with China but the reality is the markets don't seem to care about the noise (at least for now).

As noted in the last newsletter, investors and traders have started to lay low ahead of the long weekend and we generally don't see liquidity come back into the markets until Labor Day. In short, it is going to be a long summer.

Holiday trade, such as what we are about to witness this weekend, often results in a slow grind higher. Thus, those looking for some sort of big sell-off will likely be disappointed; history suggests otherwise.

On a random side note, while we favor the upside in stocks in the short-run we have to begin questioning the long-run. Despite the US economy being on firm footing, the rest of the world is not. For instance, most EU countries are still operating on a negative interest rate model to spark economic growth but they aren't seeing the results they were hoping for; 1% to 2% growth with an IV inserted into the vein of the economy isn't promising. The global nature of the current economy means the US could eventually be dragged into the mud with the rest.

Treasury Futures Markets



US investors are spoiled by higher bond rates.

Although we are feeling sorry for ourselves every time we look at savings account statements or try to invest in low-risk assets, the rest of the world has it worse. For several years, major economies in Europe have lived with the idea of paying banks to hold funds (not the other way around). Because of this, we've yet to see interest rates in the US normalize (overseas buyers seeking low-risk yield only have one place to go, US Treasuries and that pushes prices higher and yields lower).

It is also worth noting that China is a major holder of US debt, but speculation they will liquidate holdings to teach US politicians a lesson is short-sighted. Not only would liquidation of their Treasury holdings dent prices to cause self-inflicted wounds, but they also wouldn't be able to find a substitute investment that pays as well with similar default risk.

Regardless of the longer-term view comments above, we doubt there is a substantial amount of upside potential in Treasuries in the coming weeks. In fact, it feels like we might get an options expiration rally going into Friday's closed but beyond that, a correction is in order.

Treasury futures market consensus:

The highs are either near, or in, but hedges are needed to survive options and futures expiration in the coming week or two.

Technical Support:ZB : 146'16, 144'20, 142'30 and 141'28 ZN: 122'21, 121'10 and 120'02

Technical Resistance:ZB: 150'14, 152'28, and 115'16 ZN: 125'01 and 126'04

Stock Index Futures



Lowest short stock holdings since 2006.

We often talk about speculative positions held in the ES but we heard a stat that applies to individually held stocks in equity trading accounts that caught our attention. There are fewer short positions held in stock trading accounts now than there have been since 2006! I recall the 2006/2007 rally well. It defied gravity until it didn't. Not unlike the current market environment.

Heading into the financial crisis, anybody short the stock market likely ran out of money, fortitude, or both prior to what would have been a big payday. In essence, the shorts were squeezed out of the market (thus reaching historically low levels of short interest in 2006) before the market collapse.

Will we get similar price action this time around? While we aren't bold enough to suggest a 50% or more decline in the S&P 500 we do think there will be some incredible pain to be had at some point in the coming years (perhaps as we get into the heat of the next election cycle). Unfortunately, we don't know when...but the lack of short trader interest in stocks is probably a red flag.

Stock index futures market consensus:

The bulls need to continue closing above 2815 to avoid a potential slide into the 2600 handle. In the meantime, we are looking for 3,000 to 3,030 (assuming 2815 continues to hold).

Technical Support:2815, 2792, 2756, 2715, 2638, 2445, and 2358

Technical Resistance:2894, 2969, 3000, and 3032


E-mini S&P Futures Day Trading Ideas
These are counter-trend entry ideas, the more distant the level the more reliable but the less likely to get filled

ES Day Trade Sell Levels: 2872 (minor), 2882, 2898, 2940, 2969, 2977 and 3000

ES Day Trade Buy Levels: 2853 (minor), 2830, 2795 and 2780


In other commodity futures and options markets...

September 12 - Roll the September Bloomberg Commodity Index into the December contract.

December 13 - Roll the December Bloomberg Commodity Index into March.

December 27 - Sell July corn 390 put and purchase the July 350 put for insurance.

December 28 - Go long July soybean meal, sell a July 320 call and buy a March 290 put for insurance.

January 2 - Buy the July coffee 115/125 call spread, and sell the July 95 put. Then buy the March 90 put for insurance.

February 9 - Buy back the July 95 coffee put to lock in gain, then sell the July 102.50 put and purchase the April 100 put for insurance.

February 19 - Buy back July coffee 125 call and sell the April 100 put to lock in gains. Purchase an April 95 put to replace the insurance.

February 21 - Exit half of the Bloomberg Commodity Index futures position (we added on a dip in January).

March 8 - Purchase May coffee 90 put replace expiring April put.

March 15 - Roll March BCI into June.

March 19 - Sell diagonal call spreads in cattle (sell June 128 call and buy May 130 call) to collect roughly 1.00 or $400 per lot.

March 21 - Exit May wheat spread to lock in a small loss.

March 21 - Establish a fresh position in wheat using a covered call (buy July future near $4.70, sell a July $4.70 call and buy a $4.00 put for protection) for a net credit of about 20 cents ($1,000).

March 21 - Sell diagonal call spreads in hogs (sell June 110 call and buy the April 85 call for insurance) for a net credit of about $940.

March 28 - Lock in a quick profit on the hog spread (roughly $400 to $500 for most clients depending on fill prices).

April 3 - Buy back short June cattle 128 call to lock in a profit of roughly $400 per contract (hold the long May 128 call in hopes of a rally).

April 9 - Sell July crude oil 69 call and then buy the June 72 call for insurance. The net credit should be roughly 60 cents, or $600 before transaction costs.

April 9 - Sell June hog 110/80 strangles and buy the May 107/69 strangles for insurance. The net credit should be close to $1,000 before transaction costs.

April 10 - Swap the May coffee 90 put for the June 90 put to refresh the insurance.

April 17 - Buy back one of the June euro 115 calls to reduce risk.

April 23 - Buy back hog strangle to lock in profit on this part of the trade (about $400 to $500 depending on fills (before transaction costs and prior to considering the open loss on a long strangle).

April 23 - Replace long ZM future with two diagonal put spreads (July 305/June 295).

May 2 - Buy back July crude oil $69 call to lock in gain.

May 8 - Roll the June coffee 90 put into a July 87.50 put.

May 9 - Roll the long 3.50 July corn puts (part of a credit spread) into June 3.45 puts to prepare for a potential reversal.

May 17 - Sell July corn 3.90 call and buy a June 4.10 call for insurance.

May 17 - Buy June wheat 5.00 call to insure the trade through Monday's USDA report.

May 22 - Roll the June soybean meal 295 puts being used as insurance to July 280 puts.